Before Health Care Reform, there were no special federal tax incentives for small employers to offer health insurance coverage to their employees, other than an ordinary business deduction, and small business owners struggled with the expense of group coverage. To encourage small employers to provide health insurance coverage for their employees, health care reform provides a small business tax credit for tax years beginning 2010, through 2015.
The credit is calculated on form 8941, as part of the employer’s annual federal tax return. The most important things to know about the Credit for Small Employer Health Insurance Premiums:
- An employer must employ less than 25 full time employees
- Average wages of employees must be $50,000 or less
- Owners, spouses and family members DO NOT figure into the calculation of average wages
- The credit is for years 2010 – 2015
- For 2010 thru 2013, there is no requirement to use the SHOP to obtain the credit
- For 2014 and 2015, you must have a SHOP plan to obtain the credit
- A business that has not taken the credit for tax returns 2010 thru 2013, you can still take it by amending the business’s tax returns
- For 2014 and 2015, to take the credit, the group health plan must be purchased through the SHOP, so consider buying a new plan for those years
- The credit can be big, up to 35% of employer paid premiums for 2010-2013 and up to 50% for 2014 and 2015 (so, for example, if an employer’s contribution to employees’ health insurance premiums totaled $30,000 for year 2013 and 2014, his credit could be as much as $10,500 for 2013, and $15,000 for 2014)
- For tax purposes, credits are very important and much better than deductions, they are dollar for dollar reductions in taxes
- Employers should bring their tax preparer a copy of their health insurance bills for the year, broken out by employee and owner, and consult on how the credit should be calculated
- Types of businesses that could possibly qualify:
- Restaurants and Bars (that are not a chain)
- Retail shops (that are not a chain)
- Certain small business or medical offices
- Mechanics, repair shops and machine shops
- Small non profits (their credit is smaller)
If you think that your business may qualify, consult your tax advisor.
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